Compound Interest.
Visualize how your investments grow over time through the power of compounding.
Understanding Compound Interest Calculator
Simulate the growth of your investments over time. By reinvesting your earnings, you earn interest on both your original money and the interest you've already accumulated.
Compound interest is often called the eighth wonder of the world. It is the simple mathematical principle of earning interest on your interest, which creates exponential growth over long periods.
Why does compounding matter?
If you invest money and earn a fixed return every year, your money grows linearly. But if you reinvest those returns, your money starts growing faster every single year. The earlier you start, the more pronounced this effect becomes.
Using the calculator
- Initial Investment: This is the starting amount of money you have available to invest.
- Monthly Contribution: The amount you plan to add to your investment every month. Consistent contributions significantly boost long-term wealth.
- Annual Interest Rate: The expected average yearly return on your investment. For context, historical stock market returns average around 8-10% long-term.
- Years to Grow: How long you plan to leave your money invested.
Understanding how your money compounds is the first step towards achieving financial independence. Play with different scenarios to see how increasing your monthly contributions or waiting a few more years can drastically change your final balance.
Who is this for?
Long-term investors, retirement planners, and anyone looking to understand how their money grows over time.
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Accurate Models
Professional grade formulas.
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Clear charts and graphs.
Enter your starting balance (Initial Investment).
Enter how much you plan to contribute monthly.
Set your expected annual interest rate.
Choose your time horizon (years).
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal plus the interest that has already been added, leading to faster growth.
What is a realistic interest rate to use?
It depends on your investment vehicle. Broad market index funds historically return about 8-10% annually before inflation. High-yield savings accounts typically offer 4-5% depending on current central bank rates.
Does this calculator account for inflation?
No, this calculator shows nominal returns. To see inflation-adjusted numbers, you will need to manually reduce your expected interest rate by your expected inflation rate.